---
title: "3. Knowledge required for investment (Bonds)"
type: "Topics"
locale: "zh-HK"
url: "https://longbridge.com/zh-HK/topics/31880455.md"
description: "Definition of Bonds: Bonds are securities issued by governments, financial institutions, and businesses to raise capital through legal procedures. They promise to repay the principal on a specified maturity date and pay periodic interest at an agreed rate. Key Roles and Markets: Issuer: The borrowing party. Based on the issuer, bonds are mainly categorized into: Treasury Bonds: Issued by the central government. Backed by national credit, they are considered the safest bonds with minimal risk..."
datetime: "2025-07-16T17:03:14.000Z"
locales:
  - [en](https://longbridge.com/en/topics/31880455.md)
  - [zh-CN](https://longbridge.com/zh-CN/topics/31880455.md)
  - [zh-HK](https://longbridge.com/zh-HK/topics/31880455.md)
author: "[割麻了](https://longbridge.com/zh-HK/profiles/14430749.md)"
---

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# 3. Knowledge required for investment (Bonds)

**Definition of Bond:**  
A bond is a security issued by governments, financial institutions, or corporations to raise capital through legal procedures. It promises to repay the principal on a specified maturity date and pay periodic interest at an agreed rate.

  
**Key Roles and Markets:**  
**Issuer:** The borrower. Bonds are mainly categorized by issuer:  
**Treasury Bonds:** Issued by central governments. Backed by national credit, they are considered the safest with minimal risk.  
**Municipal Bonds:** Issued by local governments for urban projects. Slightly riskier than treasury bonds.  
**Financial Bonds:** Issued by banks or financial institutions.  
**Corporate Bonds:** Issued by companies. Highest risk due to potential default, with interest rates varying by credit rating (e.g., AAA, AA, B). Lower credit = higher risk = higher interest to compensate investors.  
**Bondholder:** The lender, often institutional investors (pension funds, insurers, mutual funds) seeking stable cash flow.  
**Bond Market:** Includes primary (issuance) and secondary (trading) markets. Bonds can be traded before maturity, e.g., if someone needs cash, they can sell the bond to another party.

### Analogy:

Imagine your booming bubble tea shop needs ¥100k to expand. To avoid equity dilution (issuing new shares), you opt for debt.  
**Bond Creation:**  
You issue standardized "IOUs" (bonds) with:  
**Face Value:** ¥1,000 per bond (100 bonds for ¥100k).  
**Coupon Rate:** 5% annually (¥50/year per bond).  
**Maturity:** 3 years (repay ¥1,000 then).  
**Issuer:** Your tea shop.  
**Holder:** Any buyer (e.g., investor Xiao Zhang).  
**Relationship:** You (debtor) must pay ¥50/year and repay ¥1,000 at maturity, regardless of business performance. **Bond = Standardized loan contract.**

### **Why Do Bond Prices Fluctuate?**

Key driver: **market interest rate changes.**  
**Scenario 1: Rates Rise (e.g., to 7%)**  
Xiao Zhang’s 5% bond becomes less attractive. To sell, he must lower its price (e.g., ¥960) to match new bonds’ 7% yield.  
**Result:** Bond prices fall when rates rise.  
**Scenario 2: Rates Fall (e.g., to 3%)**  
Xiao Zhang’s 5% bond is now premium. He can sell it above face value (e.g., ¥1,040).  
**Result:** Bond prices rise when rates fall.  
**Core Insight:** Bond prices and interest rates move inversely.

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- [Pmco Active Bd (BOND.US)](https://longbridge.com/zh-HK/quote/BOND.US.md)